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Coalition programme for business

Submitted by admin on Fri, 21/05/2010 - 00:00

Away from the cosy enchantment in Downing Street, the City and business have been waiting anxiously for clarity and certainty. The Conservative and Liberal Democrats had separately devised radical plans to rebuild the City and reboot the economy. But which policies survived? Has the coalition delivered the foundations for recovery or just a fudge?

DEFICIT

Ostensibly, using the vital question of the national debt as a yardstick, the coalition document looks like an ugly mash of Tory plans of attack with Lib Dem ideal. So the agreement states that "tackling the deficit is essential, but it is not what we came into politics to achieve", while it believes "it is deeply unfair that the Government could have to spend more on debt interest payments than on schools".

But behind some obvious Lib Dem language, the hard-line Tory policies have survived almost precisely intact. Osborne's repeated vow to remove "the bulk" of the structural deficit has been marginally toned down to a promise to "significantly accelerate" its reduction. But specific measures to act immediately remain as promised in the first draft of the coalition agreement, including cutting £6bn to front-line services; scrapping the National Insurance hike; curbing Child Tax benefits; and creating the Office Budget Responsibility.

A Spending Review will follow but savings will be sought in cutting spending rather than tax rises – a Tory rather than a Lib Dem principle. But, almost as a surprise kick, the Lib Dems have in return won a major concession to scrap income tax for those earning less than £10,000. Although hinted at in the first draft, markets will ponder how the estimated £17bn hole it could create will be filled.

CITY / BANKING

The initial horror of Vince Cable's appointment as Business Secretary was tempered with the announcement two weeks ago that big global banks would be granted a stay of execution while a "commission" takes a year to ponder whether they should be broken up. However, there was much more in the Lib Dem arsenal to worry about: "Saint Vince" had called bankers "Scargills in pinstripes", vowed to break up the banks, impose tough lending targets, and restrict cash bonuses to a diminutive £2,500.

But in the event the disappointment was not so much the detail but the lack of it. The document lists 11 "agreements", but almost all prove that there's anything but at the moment.

A "bank levy" is confirmed but there is no clue on whether this will be imposed on assets (Lib Dem idea) or on profits (Tory plan), just that the coalition will "seek detailed agreement on implementation." There are also plans for a "social responsibility levy", which was an old Tory idea. Bonuses will face "detailed proposals for robust action" that will be "effective in reducing risk", but there are no specifics. Yet more "detailed proposals" are promised on the Lib Dem plan to rebuild Britain's mutuals and building societies but it stops far short of Cable's original plans.

On bank lending, the language is particularly fragile. The coalition promises to "ensure the flow of credit to SMEs" that will "include consideration" of a loan guarantee scheme and targets for the nationalised banks.

As announced last week, the Tories have ditched plans to scrap the Financial Services Authority but have extracted key powers. The watchdog's powers over macro-prudential regulation will go the Bank of England, while its crime-busting function will be folded into the new "super-detective" along with the SFO and parts of the OFT.

But beyond the architecture, the coalition looks set to wait for international agreement on bank reform. There is one surprise olive branch for bankers: the agreement says it will "review the taxation of non-domiciled individuals". The emotive plans to overhaul the Takeover Rules to protect British companies have been reduced to a "review of the range of factors to be considered by regulators".

BUSINESS

The big message was heralded on Wednesday night by the Chancellor when he promised to "create the most competitive tax regime in the G20". In terms of headline corporation tax that could mean a drop from 28pc to below 20pc, which is the current rate in Turkey and Saudi Arabia.

Cable has won a concession to sell Royal Mail. The Post Office will stay in public ownership and will be put to greater use as a distribution network and even a bank.

The Tories' plan to implement the Dyson Report on boosting innovation has been agreed in principle, including the entrepreneur's suggestion of scrapping R&D tax credits for all except small hi-tech firms.

In a surprise move, there is a plan to reinstate Operating and Financial Reviews (OFR) to "ensure that directors' social and environmental duties have to be covered in company reporting". These were originally proposed by Labour but pulled by Gordon Brown in 2006 in a controversial about-turn that angered businesses that had spent millions in preparation.

For small businesses, the coalition has kept the popular Tory promises to tackle red tape, including imposing a "one-in-one-out rule" on new regulation; scrapping "tick-box regulation" and introducing "sunset clauses" under which rules will expire if they are not reviewed. Better still, the loathed system of "gold-plating" European regulation will be scrapped. But Cameron's project of improving flexible working through employment legislation has remained.

In more good news, a "wholesale review of all small business taxation" is promised, including of the hated IR35 tax legislation that has entangled freelancers. Meanwhile, 25pc of the multi-billion pound government procurement programme will be given to SMEs.

Cable has secured his idea to allow small shopkeepers to appeal against the planning permission for large retailers, albeit in watered-down version. A supermarket tsar to rule on disputes between suppliers and retailers will also be appointed.

An awkward stand-off over the future of Regional Development Agencies (RDAs) has been neatly side-stepped with the creation of Local Enterprise Partnerships. Rather than scrapping RDAs, the Tories have conceded to an agreement that "these may take the form of the existing RDAs in areas where they are popular".

OTHERS

The parties have agreed to disagree on all things nuclear but the document includes a commitment to Trident and a carefully worded process to proceed with nuclear power plants. Which could lead to cheaper Business Electricity.

Elsewhere, the coalition wants to boost the green economy and have promised to create a green investment bank; scrap HIPs; cancel Heathrow's third runway and refuse permission for expansion at Gatwick and Stansted.

The whole country will be served by superfast broadband and the coalition has pledged to ensure "BT and other infrastructure providers" make this happen.

The controversial "Infrastructure Planning Commission" will be replaced by a "fast-track" process for major projects.

Eon boss Johannes Teysson has lashed out at politicians for failing to rescue the EU emissions trading system (ETS). Anyone who claims Europe is a pioneer of climate protection "should be ashamed", he told the German daily newspaper Suddeutsche Zeitung.